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ECONOMY

Puerto Rico oversight board approves fiscal plan with pension changes

Puerto Rico's Financial Oversight and Management Board on Monday certified the commonwealth's fiscal plan, with some amendments for pensions and other spending measures.

On pensions, the board amended the fiscal plan to achieve reductions in total pension outlays of 10%, beginning in 2020. The board and the government will take 30 days to work out a specific plan to be finalized by June 30, 2017, based on funding existing pension obligations on a pay-as-you-go basis, liquidating assets and using general fund revenues; enrolling all active members and new hires in defined contribution accounts to pay for future benefits; and progressively reducing total pension benefit payments by 10%.

The oversight board has projected that Puerto Rico's three main pension plans could run out of money by fiscal year 2018.

The government's plan does not address some entities involved in bondholder lawsuits, but does say that communication “can create the opportunity for maximum consensus among stakeholders.”

A board statement said that “the problems facing Puerto Rico are massive. Over time, the government has made commitments to everyone — including employees, pensioners, college students, enrollees in health-care programs, bondholders and others — that cannot be met based on a realistic measure of the tax revenues the economy can currently support. However we define the problem, whether in terms of budget deficits, indebtedness, unfunded pensions or the imminent risk of simply running out of money to pay bills, Puerto Rico faces a nearly existential financial shortfall. The financial problems facing the government and the island did not develop overnight and the solutions will not be implemented overnight.”

The board asked the governor to provide details on implementing the fiscal plan by April 30, including generation of a $200 million cash reserve by June 30.